What is the CAC 40?
The name ‘CAC 40’ is in fact an abbreviation of its full name ‘Cotation Assistée en Continue’ and the number 40 represents the forty companies that are quoted. It is the major economical indicator of the French market and is quoted on the Euronext Paris stock exchange. This index therefore takes into account the share quotations for 40 of the largest French companies.
More precisely, the CAC 40 Index is calculated from the share price results of the 40 largest and best performing French companies, extracted from the 100 largest companies quoted on the Paris Euronext stock market. A committee of experts is responsible for the selection of these businesses according to various criteria including company size, stock market capitalisation, and their representation of their activity sector as compared to national data.
We can therefore fairly easily understand that when the shares of companies quoted on the CAC 40 move in a certain direction, the quote for the index itself tends also to follow this trend, whether it is rising or falling. But the ratio afforded to each business and therefore its importance in the calculation of the Paris index rate varies according to the influence of each business in the country’s economy.
The quotation of the CAC 40 index is revised every 15 seconds as it is what is called a ‘continuous quote’. It is possible to follow the movements of this index price from Monday to Friday, from 9 a.m. to 5.30 p.m., which are the opening hours of the Euronext market.
It should be noted here that the Paris Euronext stock exchange is the official market for the French business assets, but it is also part of the NYSE Euronext market which is the major stock market group worldwide.
Composition and calculation of the CAC 40
As we saw above, the CAC 40 is composed of the assets of 40 French companies. Its calculation therefore relies on a weighting of these titles. Of course, all the companies priced do not have the same weight in the calculation of the final index and each one of them is associated to a specific coefficient according to its exchanged volume and thereby its importance compared to the others.
The CAC 40 index calculation is revised every 15 seconds according to the movements of all the titles represented in real time. The market that reports this quotation is open from Monday to Friday, from 9am to 5.30pm. It is therefore only from 9am that the index takes into account all the orders passed before this time. The market opening therefore generally presents more marked movements than during the remainder of the day.
Where to find the quote for the Paris Stock Market?
It is nowadays fairly easy to consult the quote for the Paris Stock Market. There are several ways to do this. In particular, you can subscribe to a financial review that will give you the new quotes every day, and note events observed over the last 24 hours, or you can consult certain specialised websites that offer the same information.
Unfortunately, in these two cases, it is not always possible to follow the quote of this stock exchange in real time and therefore seize the best opportunities.
What are the external elements and factors which influence the CAC 40 prices?
To understand how the price of the CAC 40 index is fixed, it is logically necessary to be interested in the French economic activity as a whole. So, all political, financial and economic important information about France is to be taken into account.
The principal influential elements relate in a direct way to the economy such as the GDP calculation, the ratings agencies evaluations, the employment and unemployment figures and the general results of the various industrial branches.
The more experienced traders will be able to venture into cross-examining information emanating from the various companies priced in this index but the calculation of these trends remains extremely long and complicated and is therefore not appropriate for beginner investors.
However, the majority of the Forex trading platforms place at the disposal of their users some charts reporting the more or less recent price movements which make it possible to easily complete a technical analysis and thereby to predict certain trends or movements. It is however recommended to take into account at the same time this data and that of more psychological orders and that related to current events, to detect the “announcement effects” in advance.
As you have undoubtedly understood, the CAC 40 is particularly representative of the French economy. Therefore the indicators to follow, apart from the technical analysis, are as follows:
- The overall French economic results (GDP, trade balance, related indices…)
- The results and innovations of the businesses quoted (turnover, capitalisation, profits, investments...)
- The major policy decisions that could directly impact the productivity of these businesses (fiscal reforms, assistance, employment…)
To summarise, when you establish your trading strategy you should take into account all the environmental indicators together with the market trends.
How to analyse the variations in the CAC 40 index and anticipate its future movements:
As we mentioned earlier, a fundamental analysis of the CAC 40 index rate is fairly easy to complete and the indicators you need to follow are particularly simple to find in the news. You can for example take the following elements into account:
- Data relating to the French economy such as the GDP, the purchasing power and the unemployment rate.
- All the policy decisions aimed at assisting French companies to become more profitable (changes in the tax rates, premiums etc...).
- Major news relating to companies that have more weight in the calculation of this stock market index.
- The correlation with other worldwide stock market indices, notably those of countries with greater economic strength such as the United States and Japan which are often correlated to the CAC 40.
- Foreign exchange rates between the Euro and other currencies that will impact the French economy.
- Major changes in economic policy at the heart of the European Union.
To obtain this information you simply need to subscribe to an online targeted news and events feed but you should know that if you speculate on the CAC 40 index using CFDs you will be able to access targeted information and events through your online broker relating to this market and therefore do not need to concern yourself with extra specific research.
Let us also take a few minutes to remember the importance of a comprehensive technical analysis of this asset. In fact, the CAC 40 is also a highly speculative asset and the investors that trade on its rate heavily base their forecasts on the charts before taking position. We therefore recommend that you use various technical indicators available to identify the beginning or end of a trend or the attainment of a strategic threshold.
Which are the best trading strategies on the rate of the CAC 40 using CFDs?
Let us now go a little further with our trading analysis of the CAC 40 stock market index using CFDs by closely examining the trading strategies most commonly used by traders for this asset on the online trading platforms.
One of the most suitable strategies for trading on the CAC 40 is undoubtedly swing trading. This method is particularly appropriate for traders that are not able to spend all day monitoring their charts as it only requires a short amount of time to set up. In fact, only a few minutes analysing charts of this stock market index each week plus a daily examination of each day’s events as explained previously is enough to prepare and implement your strategy with an acceptable risk level. But far from simply just saving you time, the Swing trading method also offers a highly advantageous time/win ratio. Using this method you should be able to complete profitable operations without the need to dedicate yourself to your trading activities for more than a few hours each week. The technical and fundamental analyses are particularly complementary here and offer real opportunities if you are able to identify the major signals and indicators, and whether you plan a short, medium or long term trading strategy.
Two other highly popular strategies that are particularly suitable for speculating on the CAC 40 are the Day Trading strategy and scalping. However, these two investment methods require a greater availability than the swing trading strategy. It is therefore not recommended that you practise this strategy unless you have a minimum specific amount of time free each day to devote to this activity. In fact, to be successful with this type of strategy you will need to adopt an intraday trading style, this means during a single trading session you will take one or several positions that you will close before the end of the trading session. It is clear that if you are lacking in availability then you may miss out on certain opportunities. Here it is important to remember to use certain time units that are particularly suitable; less than one hour for day trading and less than 5 minutes for the scalping strategy. Of course, the time you choose to take position is crucial as you need to take into account specific times and events noted in the economic calendar. There are times to avoid opening a position on the CAC 40; quiet times such as lunchtime for example given that rate movements at these times are relatively weak as most of the main players on this market are absent.
As you have undoubtedly understood, choosing the correct trading strategy to use for effectively trading on the rate of the CAC 40 depends greatly on the time you can dedicate to your trading activity as well as your actual investment horizon, this means the time you can actually keep a position open. To summarise, if you are hoping for a rapid investment then you should dedicate more time and use shorter positions and, to the contrary, if you do not wish to hasten things then you only need to dedicate your time to this activity occasionally.
The function of CFDs for trading in the CAC 40 stock market index:
Now that you have learned about all the data that may assist you when trading on the CAC 40 index rate or completing an analysis of its movements we now offer you the opportunity to learn how CFDs really work with this type of investment.
As you probably already know the term CFD means Contracts for the Difference. These are basically financial derivative products where the rate reflects that of the associated asset. These CFDs actually function not only with trading on stock market indices such as the CAC 40 but also with other types of assets such as stock market shares or even commodities.
Therefore when you take position on the CAC 40 using CFDs this is like signing a contract with your broker and not purchasing shares in this index. It is extremely important that you understand this particularity in order to better comprehend the fundamental characteristics of these unique contracts. We could say that a CFD simply reflects the price or rate of an asset.
It is therefore possible to take position on the rise, this means on the purchase of an asset using CFDs as well as the fall in the rate as is offered by a short sell. The profit or the loss recorded by the trader corresponds in this case to the difference between the rate of the asset at the opening of a position and that of its closure. Of course, as the trader is not the outright owner of the asset on which they are speculating, they cannot receive any other form of benefits such as dividends for example.
But that is not the only particularity of trading using CFDs. In fact, these Contracts for the Difference function in a very different way to those of other placement products. Such as with the broker fees for example. Here of course the brokers receive payment in a different way, through the use of spreads. These spreads are slight differences between the real price of an asset and the rate at which the trader opens or closes a position. It is therefore important to take this slight difference into account before taking your profits. And another point, trading using CFDs enables the use of what is called the leverage effect. This is the possibility of multiplying the amount of your investment by a prior fixed rate. Therefore, with a leverage effect of 1:100, a profit of €1 in fact corresponds to an actual profit of €100 without actually investing a significant amount. However the possible losses engendered by this leverage effect in the case of an erroneous speculation are also multiplied by this same rate so a leverage effect is therefore to be used with prudence.
Nowadays CFDs are proving to be extremely popular with individual investors worldwide as they offer direct access to the markets and enable the traders to develop their own trading strategies. Also, to be able to use them you only have to take a few minutes to register on an online trading platform and open an account. Of course the possible profits with these contracts are generally highly superior to those using classic placement products but the risks are also greater. Luckily the CFD trading platforms offer numerous analytical tools and assistance that help greatly with your decision making. You can notably find charts that can be entirely customised with numerous indicators and signals as well as financial and stock market news and events and other useful elements such as training modules, risk free demonstration accounts and even automatic orders that enable you to programme the opening and closure of your positions in advance.
Another undeniable advantage of CFDs is that they do not necessarily require a substantial investment, partly due to the leverage effect we mentioned earlier but also because the online trading accounts are accessible through relatively low initial deposits. Of course you do have the possibility of withdrawing your profits when you wish to do so and no long term contract is required with your broker.